Subject: Economic Prosperity and Law...

(Tuesday, January 20, 2009)

(approx. 3525 words, 6 pp.)

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From Plato’s Republic, to Aristotle’s Politics, to Cicero’s Republic, and Adam Smith’s Wealth of Nations, Western man has asked the question, What is the Just Republic, and how does it relate to the morally virtuous and truly fulfilled life of the individual and to the wealth, health, and overall prosperity of the nation? Following what appears to be, now, an inevitable worldwide economic meltdown in 2008, it is time once again to raise these time-honored questions of mankind on earth. What are the same lessons learned, yet again, in this our day? The seeds were laid for this latest collapse in the 1960s with an overall or general social/ cultural shift to a morally relative humanism, which is a foolish sand upon which no society, individual life or economy can be built. Once again, this is the lesson learned, but the dynamic of setting up "a just republic" or "commonwealth" with liberty and justice for all is a much greater question, yet to be answered in the long story of man on earth...

To start the New Year of 2009 after the stock market crash of 2008

This past year has seen economic and market changes, crashes, and wild fluctuations never seen before in our American history and in world history in this era of global markets and investing. So, we ask here, what went wrong, and why, in the stock market crash/meltdown of ‘08? And how in the world are going to put this back together again in just and prosperous nations throughout the world? Why did the banks need an almost trillion dollar bail out, and will it work? Why were major financial institutions around the world failing left and right, and why were even the most basic of banking principles seemingly abandoned entirely? Clearly we need to get "back to basics" with our economy, but it is much more complicated than that, but what are really "the basics" of a sound economic system, and on what foundational principles should not only an economy be built, but implicitly a just and prosperous nation?

In this analysis I am not claiming to be a financial expert nor am I particularly interested in policy details, but rather a theoretical or philosophical as well as practical analysis of "markets" and how they work, and relate to the good of the society, and in our case even how they self-destructed! (This is to be in the tradition of a Republic, not a detailed Laws of Cicero or Plato.) There seem to be things that everyone agrees upon, and I am not claiming new insights in these things, but rather the goal is commentary on what everyone does tend to agree upon. The government was pressuring banks to give loans to unqualified poor and minorities in order to promote home ownership and the mortgage-buying government giants Fannie and Freddie were also involved in the effort, and some even say with faulty accounting procedures to make matters even worse, and further to really make matters even worse, still, if that is possible, these weak or potentially bad loans were often being given AAA status of all things (or so it was widely reported on the news)!!!

These poor government policies were then coupled, it would seem with massive deregulation of the mortgage and financial industry, and the banks and investment houses then went nutty of their own accord (it appears) with either massively leverage hedge funds or with the most shabby of banking practices that would not pass scrutiny in Banking 101!!! 100% mortgages on overvalued properties virtually guaranteed disaster and a very big bubble to burst with time. Deregulated, essentially humanistic, foolishness, greed, and speculating ran amuck! So, it would seem we were pumping massive of mounts of bad paper into the system often leveraging it to the hilt and then calling it AAA, of all things! (God, help us!)

The attitude of most people on this thing was if you want to leverage investments and make ill-advised loans, it is a free country, and you should be free to do it! No thought was given to the larger financial system, let alone the health and wealth of the nation as a whole, nor the potential ripple effects when and if the massive meltdown or collapse occurred. Even the venerable Alan Greenspan fell victim to this thinking, as I recall the news at the time. As with the collapse of Enron, it is my suspicion that there was probably some serious cover up going on at some point along the way, but I have no direct knowledge of that, and that is somewhat secondary at this point.

If you recall, the failed Enron tried to hide their growing problems in long complex footnotes in their financial reports hoping they could ride out their problems, and several people went to jail for this, and one major accounting firm went out of business, but this hide-it-in-the-footnotes made the collapse even greater when it came, and many people were (said to be) trying (improperly) to manipulate stock prices in order to exercise options and get bonuses and that sort of thing, or so it was widely reported in the news, and this was true of the larger meltdown of 2008 as well according to almost all news reports, anyway. In any case, the libertarian is correct; the markets do "self correct," but under such "corrections" the correction becomes a meltdown of the entire financial system and requires a massive bail out! The better term might be "self-destruct" rather than "self-correct"? A rough lesson to have learned from unregulated markets but we have learned it before...

2008, something of a repeat of 1929? But worse?

Unregulated or laissez-faire capitalism tends to self-destruct, and it tends to exaggerated boom-and-bust economic cycles, and even a culture of "fudging" reports in the process, if not outright corruption. Is this not the message of 1929 as well as essentially the same message of 2008? I even learned in high school American history class (of all places) that it was 10% stock margins that really caused the 1929 implosion, and two news reports I saw on television (one on PBS and the other on NBC) said that it was 2 1/2 to 3% margins in 2008, for the big boys! You might call this (almost) no down payment stock buying! (I assume you had to be a Wall Street big wig to get these kind of loans, but I do not know. I could not; I can say for certain, but no individual investor I know could get them either!)

The fact is there were just too many faulty pillars in the building, so to speak, for it not to collapse. Not only excessive leveraging in the financial industry but bad underlying mortgages (that is, made to people who could not hope to pay the note), on over-valued property, with virtually nothing down, and with an interest rate almost sure to rise with time on the notes. And, further, these loans were being written for a greater and greater percentage of a person’s income, meaning they were not likely to make their note even with good credit, which often was said not to be established anyway, and even if the house were not over-valued with no down payment! What a mess! And, what a combination of things to ensure an economic disaster for the whole nation? The system may have been able to survive any one or two or even three of these things but certainly not all 5 or 6 or even 7 of them combined, all of which fed or fueled each other in their foolishness and made the situation worse, and this made catastrophe greater when it happened and violated almost all wise banking procedures in the private sector and wise government regulation in public sector, which had been around for decades, and this is apart from things being outright unethical at times in both sectors, which it is said they sometimes were?

The truth is if you cannot save just for a small down payment, you will not be able to pay a mortgage, in all likelihood, and the bank is not going to be able to recoup its losses and resell the property without taking a hit either, that is, without the down payment. Nothing down also increases the likelihood the buyer will walk, and, the ease of buying with no down payment even contributes to the growing bubble. The government doing down payments for the poor was equally misguided, and probably contributed greatly to the collapse when it came? I was President of two homeowners associations in those years, and the stories I could tell of what happened in those 35 or so homes is hard to believe even from a very limited personal experience and observation.

The point is it was absurd for banks to be giving out nothing-down loans to non-credit worthy people on over-valued houses, and in the end it is the shareholders in a capitalist society that get the shaft, and who assume that the bank officers are not total fools! The executives were being paid big bucks to destroy the banks they were running! And they wrote glowing earnings reports of their dealings, and on and on! And all with virtually no government oversight, as best I can tell. A theater of the absurd, was the banking industry of the 1990’s and the first decade of the 21st century? The wonder is not that the collapse happened, but that it took so long to come, and in fact the longer it took to come the worse it would be! Will almost a trillion dollar infusion save the system? I hope so, we are now in the process of seeing if that is so!

Individualistic libertarianism and egalitarian liberalism are both humanistic

The fact is it was not just greed and poor judgment in the private sector coupled with certainly misguided and sometimes even corrupt liberal programs that did us in. It is the underlying philosophical or "worldview" basis of these two positions that are the real problem, and these have a long history in economic theory and in social and political philosophy, throughout the modern era and going back to antiquity. Socrates/ Plato, Cicero, Aristotle, the Apostle Paul, John Locke, Adam Smith, John Stuart Mill and even Moses write on this very subject, in one form or another! (No one in America education seems to know that today, but that is another subject for another time.)

Essentially the "no-regulation is good" or laissez faire position is that of the individualist libertarian, and it is probably best associated with John Stuart Mill as much as even Adam Smith, and the liberal position is generally a well-intentioned but usually misguided effort to do good or regulate, and such programs usually do more harm than good in the society generally, and, further, when you "follow the money" (as the expression goes) the liberal programs are usually to benefit a behind-the-scenes interest group, and not the society as a whole. Hence, the liberal tends to be not only misguided but corrupt, and in his denial of market realities the liberal tends to be more utopian than socialist out right, as is sometimes thought.

The fact is the extremes of "no-regulation is inherently and inevitably good" of the libertarian (in laissez-faire capitalism), and the denial of market realities by the essentially utopian liberal are both thoroughly humanist. The big difference in these two economic forms of humanism, of the libertarian and the liberal, is the libertarian tends toward radical and undesirable individualism and self-interest, while the utopian liberal tends toward a denial of market realities and flat egalitarianism and redistribution as supposed "justice."

The (humanist) libertarian thinks the key to making the whole thing work is pure "self-interest," which is man’s fallen nature acting naturally without moral restraint, and it is, in a pure form, virtually a definition of Satanic self-centered existence, no less, and of immorality as described by Socrates, Plato, Aristotle, Solomon, Cicero, and even Jesus!!! On the other hand, the utopian (humanist) liberal understands this pure (humanist) "self-interest" of the libertarian is not the way for making the good society work, but he (or she) also misses the fact that the key to making the whole society, economy and body politic work is "mutual interest"! The liberal, for his part, also does not believe in "the fall of man" so his economic models tend, therefore, to be utopian, the old "from each according to his abilities to each according to his needs," cannot work as a principle for fallen man, as the hopeful liberal likes to think, in one form or another, whether in a command-and-control economy, or otherwise.

Historically, there were, however, somewhat big splits between the liberals (all heart and no mind) and the outright communists (hard-core humanists). The centerpiece of the communist movement, which was actually a humanist philosophical movement as much as anything, is that it did not believe in the value of capital (the liberal does not go that far, usually!), and it was an outright "collectivism" and "egalitarianism." But neither liberal nor communist tend to believe in the reality of the market place, nor the just price theory (willing buyer and willing seller), and on, and on. The point is we tend to think too much in terms of a simple communism versus simple capitalism, and that is not the best way to go in understanding economic theory!

What is the opposite of the two positions of the egalitarian liberal and the individualist libertarian? Fasten your seat belt, please! It is Socrates, Cicero, Paul, John Locke and even Moses! The basis for the society in these thinkers, and ultimately it will include economic theory as well, is "the body" politic, or nation as a whole, and the nation's prosperity is found in the idea of the nation as "a body," and this idea is not only in these thinkers thought, it is usually central and foundational to their thought. (As you should know by now if you have been watching our video Programs!) The exception here would be Moses, of course, who does not to my knowledge use the model of "the body" but simply "the nation," but still, regardless, Moses also winds up with a form of regulated capitalism (not laissez-faire capitalism) to be best for the nation’s overall prosperity, and all its members. Also, you will note the Old Testament was anything but egalitarian!

The point of "the body" and its parts as representing a society is that it allows for a basic human "equality" of all people, but with differences in function, and even "wealth." Or, as is sometimes said more generally philosophically or metaphysically by Cicero, Paul, and Jefferson, people are "equal" but not "the same" in the Just Republic.  As Cicero and Paul say we are all equally parts of the body or republic but we are each different and have different functions, talents, gifts and abilities, etc. and, hence, people contribute differently to make the society and the economy work for the benefit of all, as well as for themselves. Please note: The libertarian has no "body" nor "nation" as a whole, as a real entity (ontologically speaking), but rather just individuals or groups seeking self-interest, while the liberal, on the other hand, has "the group" or "interest groups" but no distinct individuality. Still, it may seem a strange thing, initially, to maintain that the liberal and libertarian are both "humanistic." Why "humanistic," of all things? The answer to that question is manyfold, and it is as old as the naturalistic philosophy of the ancient Greeks and Romans as well as the earliest and greatest Christian writers who followed the great Apostle Paul.

Why are both libertarianism and liberalism "humanistic"? The answer is many, many, many reasons... To start, as already noted, almost every major rational moral theist uses "the body" or some variation on it (commonwealth, etc.) as the centerpiece of his theory, and humanists virtually all reject this model for the society and economy for the centerpiece of their theories, or any piece for that matter! How does the great St. Augustine describe "the City of God"? It is the Body with each of the members seeking to do God’s will in harmonious interaction (straight out of Cicero and Paul, of course), but more interestingly how does he define the opposing "City of Man"? It is just individuals (libertarians) or groups (liberals) seeking self-interest or advantage with no notion of the larger body or nation as a whole, and its true good!

How does Cicero (hardly an egalitarian!) describe the just Republic? Virtually, the same way as Augustine does in The City of God! It is a single group or body where everyone tries to do the rational moral good as part of a harmonious whole, and where everyone has an equal humanity, but people have different function and even status, etc. And, of course, Paul uses this same model for the Church as a whole. And, of course, Jefferson and Locke are going to do essentially the same thing as well. And, indeed, the system or body politic can be a monarchy (and not republic) so long as the king is not above the law says Moses, of all people, and the highly influential Samuel Rutherford. The problem is kings have a tendency to want to be above the law, so God tells Moses that any potential king of Israel is to have a copy of the Law which he makes himself so as to know it well and not violate it! In my opinion, this principle, more generally, should probably hold for any governor, ruler, executive, etc., and probably even legislator, but that is another subject for another day. But there are other reasons why the anti-body models, whether radical individualism or utopian egalitarianism or collectivism, are humanist.

So, Why are the anti-body models, whether radical individualism or extreme egalitarianism humanist? This is where the plot thickens, or can seem to, and how does this all relate to economics and economic prosperity, and to economic theory of all things? And to the stock market meltdown/collapse of 2008? And how does this all relate to the 1960s Baby Boom frat-guys and pot-heads, and to the W Bush administration and to Bill Clinton’s? And how does this all relate to Cicero, and to John Stuart Mill and ultimately even to Adam Smith? Now that is a bunch of questions!!! If you have had a good college education, you should be able to answer most of these questions to some extent anyway fairly easily, if you didn’t have a very good college education, you probably cannot answer any of them, easily or otherwise! Such is life! I learned almost all of this stuff at college, over a 12 year period, but I had to "cherry pick" the best courses at 3 outstanding universities. Or, you can pretty much do much of this by re-watching our Cicero videos! Or even our Aristotle videos, or for that matter the Plato or even Old Testament videos! Why?

Well, what was Cicero doing, and indeed what does he claim to be doing? Building a rational moral theistic system that is anti-humanist and anti-hedonist (and indeed anti-sophist) in the tradition of Socrates, Plato, and Aristotle, and then how this ethical system relates to just government and the body politic, or state, or just republic, and potentially, ultimately, to an individual accountability before God after death, no less! You cannot re-write Cicero’s Republic, Laws, and On Duties to make them say something else, and they are virtually, in many ways, a naturalistic philosophical parallel to the writings of Moses, Solomon and Paul. So, in order to understand a "body model" for economic theory as well as economic prosperity for the nation and all its individual members, one must understand where and why the body politic model (usually explicitly) arises in all of these great anti-humanist thinkers, and then the clear humanism of radical individualism and morally relative liberalism become quite evident. To be continued next time... In mid February of 2009, that is the current plan, anyway...